Duty-free sales in China’s island province of Hainan surged to 50.49 billion yuan (US$7.9 billion) in 2021, growing 83 per cent from a year earlier, as the coronavirus pandemic continues to limit travel abroad and Hong Kong’s stringent quarantine controls make it difficult for mainlanders to visit the city. Hainan’s commerce department said the number of duty-free shoppers to the island increased by 73 per cent year on year, and the volume of duty-free purchases rose by 71 per cent over the same period. The island’s 10 duty-free stores – which also sell non-duty free items – booked sales of 60.173 billion yuan last year, up 84 per cent from 2020. China announced in June last year it would turn the 35,000 sq km island into the world’s largest free-trade port by offering tax incentives and relaxing visa requirements for tourists and business travellers. Will China’s Hainan duty-free mecca boost spending at home? It also increased the duty-free quota from 30,000 yuan to 100,000 yuan per person each year and expanded the tax-free goods categories to include electronic products and wine. Starting in 2025, the entire island will be designated duty free, eliminating the need for brands to work with duty-free licensees. Beijing hopes the island’s transformation will boost domestic consumption – a key part of the new “ dual circulation ” economic strategy – by enticing Chinese to spend at home rather than in other duty-free hubs like Singapore. Tourists are already flocking to shopping destinations like the 5 billion yuan Haitang Bay Duty Free Shopping Complex in Sanya city, which is the biggest duty-free complex in the world. It is the fifth-largest luxury shopping complex in the country, according to the China Luxury Forecast 2021, which is published by the Ruder Finn and Consumer Search Group. Hainan’s booming duty-free market has also attracted Hong Kong retailers and a Hainan-Hong Kong Cooperation Pilot Zone is under construction. Hong Kong’s Chow Tai Fook group, which started as a jewellery retailer before diversifying, has 16 stores in the province, with branches in duty-free malls in Sanya and Haikou. About 78 per cent of Hainan’s offshore investment comes from Hong Kong, according to the Hainan Provincial Bureau of International Economic Development. Hong Kong, once a magnet for mainland shoppers, has lost scores of visitors due to its strict quarantine rules and months of anti-government protests that roiled the city in 2019-20. Figures released by the Hong Kong Tourism Board show that 2.764 million mainlanders visited Hong Kong in 2020, a 93.8 per cent decline from a year earlier, with the luxury and cosmetic industries suffering severely as a result. It’s a convenient option for [mainland] tourists because they don’t need a visa or to quarantine to purchase cheap goods Ding Shuang Ding Shuang, chief economist for Greater China at Standard Chartered Bank, said there is a correlation between Hainan’s duty-free growth and Hong Kong’s border controls. “It’s a convenient option for [mainland] tourists because they don’t need a visa or to quarantine to purchase cheap goods,” he said. Still, Ding said it was not realistic to think Hainan would replace Hong Kong as China’s pre-eminent shopping mecca, because each was unique. “Shopping is not the only purpose for mainland tourists’ arrival to Hong Kong. Financial services, medical and tourism are also sources of attraction,” he added. A survey of 550 duty-free shoppers in Hainan conducted by consultancy McKinsey in June 2021 found more than 60 per cent would return to shop, even after international travel resumed.